Responsible investments appeared timidly on the financial markets in the 1990s. Their development was quite slow, but these investments nevertheless progressed fairly regularly. In recent years, we have seen a real enthusiasm for this type of product on the part of investors. The Covid 19 crisis, and the resulting confinements, has also encouraged a certain awareness of the challenges of these placements. “Since the first confinement, we have witnessed a real enthusiasm for these products. This is how the French market has doubled as a whole in 2021. This is the market for labeled funds and impact funds. This type of investments is taking up more and more space in listed investments. We now consider this class of assets as a new brick in the construction of portfolios”explains Romain Avice, SRI Manager at DNCA Investments.
2021, record year
In the investment market, managers then apply themselves to avoiding companies that behave badly. The construction of investment products tries to stick to the respect of the Sustainable Development Goals (SDGs) of the UN. “In 2021, the global market received the largest amount of flows ever recorded in socially responsible investments. These are 650 billion dollars of new flows that arrived in this category of investments in 2021 at the global level. Projections show that, from now on, socially responsible investment should represent 10% of the assets invested in funds worldwide”notes Roger Depasse, Head of Belgium Distribution at Nordea AM.
This good progress can be explained both by a wider offer and by better adoption of these sustainable products by distributors and end investors. In this case, not only the choices of institutional investors but also the personal concerns of individual investors come into play. In Belgium too, we see that the ESG investment market has become an investment category in its own right. “At the end of 2020, there were 100 billion euros invested in SRI funds. It is estimated that this amount should reach 150 billion euros by the end of 2021. Today, the fund offer in Belgium consists of up to 55% non-SRI standard funds and 45% SRI funds. However, the amounts raised in these SRI funds only represent 10% of the Belgian market. We note that the offer is constantly expanding and, today, , we are witnessing a plethora of new funds appearing on this market”notes Nicolas Crochet, Founder and CEO of Funds for Good.
The environmental footprint, a crucial point
Among the investors who lean towards this type of investment, there is not really a difference in terms of age groups. However, the concerns are different depending on the age of the investors. Younger investors are, in fact, more concerned about the environment. Consideration of the environmental footprint of investments is also becoming increasingly important in the choice of investments. Young people are made more aware of environmental and climate impacts with climate marches and speeches by Greta Thunberg.
This is the easiest theme to put forward for issuers of investment funds. We can say that today, SRI or ESG has truly become an additional dimension in asset management. This dimension is integrated into the choice of securities in the portfolio. It is an integral part of the company’s valuation and risk calculation. Any extra-financial deviation by a company is therefore heavily penalized by the markets. We saw this again recently with the case of the French company Orpea, which manages nursing homes. For sanctioned companies, the road to renewed Trusted Status is particularly long. Not being socially responsible and respecting certain standards is now paying a heavy price for companies. This is a dimension that can no longer be ignored: neither by companies, nor by managers, nor by investors!